- Michelle Plunkett
Romancing the Home
Nothing makes me happier than feeling a cool ocean breeze traveling through our home while we take in a gorgeous sunset over the ocean that sits a few blocks away. I love our recently remodeled kitchen with clean bright white cabinets and quartz countertops, and especially the drawer microwave and French door refrigerator with its separately controlled vegetable drawer. I just love our home. It is where we create our history.
While there is always some small or large repair that needs our attention, the joy that homeownership brings is immeasurable. As a tribute, during the month of love, and Valentine’s Day, let’s explore some additional romantic sides of home ownership beyond the obvious everyday enjoyment benefits:
Gain Through Leverage
The ability to take advantage of leverage on one's home investment provides a substantial financial benefit of owning a home. A lender will finance 80% or more of your purchase allowing you to increase the size of your investment while enjoying 100% of the appreciation. Debt allows you to buy a better home with greater upside potential.
Owning a home also provides a path to family wealth. One can live in and enjoy the home while it increases in value. As debt is paid down, equity increases. The home can also be passed down to subsequent generations. Or, the homeowner may want to cash in on increased equity in order to buy a bigger or newer home as the family grows.
Tax Benefits - Gain Exclusion
Tax benefits are available to homeowners too. The gain on the sale of a personal residence can be sheltered from capital gains tax by as much as $500,000 for married couples, and $250,000 for singles, if you meet the exclusion criteria. This is a very special treatment towards the sale of a non-business asset.
Tax Benefits - Deductions
As suggested above, tax deductions are typically related to business costs. However, home ownership provides tax deductions even though a personal residence is not a business asset. Amounts paid as interest on a home mortgage, related to a maximum of $750,000 of mortgage debt, are deductible. You are also able to deduct amounts paid for its related personal property taxes but your total state and local tax deduction is limited to a combined $10,000. In California, this is a difficult limitation given the current cost of assessed home values.
Protection Against Rising Costs
By owning a home rather than renting, one is able to lock in housing costs and avoid periodic rent increases. Further, owning a home delivers all of the power to the homeowner as to when to move. Often, tenants need to move when landlords unexpectedly sell the property or decide to move themselves, or other family or friends, into the home instead.
Pride of ownership
As a tenant, the ability to make improvements and repairs as you see fit depends on how gracious your landlord might be. A common complaint that I hear from renters is that “if it were my house,” I’d put in a new dishwasher, or paint the exterior, or change the landscaping, or etc. If you are nodding in agreement here, you may be yearning to own your own home.
The value of home ownership extends beyond the daily personal use and happiness. Benefits of owning a home extend to financial, tax, and even personal control areas. The purchase of a home not only provides you with a personal asset for your family to enjoy it also establishes many investment opportunities and benefits. Family memories will be built along with your equity.